When my father and his sisters could no longer take care of my grandmother on their own, they decided she should move into a nursing home, where she lived for nine years. There were several heated conversations over which nursing home and discussions with Medicaid to get funding for her care.
It's been four years since my grandmother passed away, and the extended family still hasn't been together. I'm sure that wasn't part of my grandmother's plan.
Emotional and financial costs of long-term care
Those financial caretaking challenges are real for many families. Professional care can be expensive. The national median cost for a private room in a nursing home is $8,365 per month; assisted living and home health care average $4,000 per month (2018 survey from Genworth.com), and the inflation rate for long-term care services is around 4.5 percent.
Yes, Medicaid will begin to cover your long-term care expenses, but only if you are in a nursing home and only after you have spent your assets down to $2,000. Medicaid can also dictate which nursing home you will go to.
There is a 70 percent chance that a person over the age of 65 will need some type of long-term care.
Wage loss for caregivers needs to be considered. The National Care Planning Council estimates that the number of informal caregivers is about 20 percent of the total population. The typical caregiver is a daughter, age 46, with a full-time job, providing an average of 18 hours per week to one or more parents. A study estimated that these informal caregivers lose about $660,000 in wage wealth over their lifetime because of work sacrifices. If that figure seems a little high, cut it in half: Nine hours per week and $330,000 of lost wages is still a significant sacrifice.
The emotional toll of caregiving is real. I was having a conversation with an 84-year-old widow who had lost her husband six months earlier. She said that she was relieved when he passed away. She took care of him for five years and was afraid to leave the house for fear that his extreme dementia would lead him to harm himself. She felt like a prisoner in her own house. She even grocery shopped at 3 a.m. because that was the only time she felt confident to leave her husband.
You may think you will never need long-term care, but according to longtermcare.gov, there is a 70 percent chance that a person over the age of 65 will need some type of care. The average age of needing care is around 80 and the average duration of care is 2.5 years for men and 3.5 years for women. So figuring out how to plan for (and pay for) your own care or that of a loved one is a conversation everyone should have.
Long-term care funding options
Self-insure
Some advisors maintain that if you have a certain amount of net worth (for example, $3 million or more), you should self-insure. But there are many factors that come into play besides net worth. I tend to feel that if you have enough money to live on in retirement and can shift this financial risk to an insurance company, you should do it. As mentioned before, there is a 70 percent chance that you or your spouse will need care over the age of 65, and the cost of care can reach up to $1 million, depending on the type and length of care needed.
I haven't found anyone willing to self-insure their home, yet according to freeby50.com, the chance that your house will burn down in a fire is only about 1 in 3,000. If you are struggling to reach your retirement goals, it might be best to self-insure and rely on Medicaid down the road. Most likely, you are going to retire and you will need funds to pay for some type of care. You still have a 30 percent chance you won't need long-term care and thus, not have that expense.
If you have enough money to live on in retirement and can shift this financial risk to an insurance company, you should do it.
Purchase a traditional long-term care policy or a hybrid policy
Traditional long-term care insurance policies have had a lot of bad publicity because premiums have increased over the years and if you die without needing care, you have paid insurance premiums and received no value in return. However, they still provide the best benefits when a person is looking to cover long-term care. Also, state regulations have become more stringent to protect consumers from large and frequent premium increases.
If you are concerned about the "use it or lose it" factor of traditional long term care, consider a life insurance policy with a long-term care rider known as a hybrid policy. This means if you need long-term care, you can accelerate the death benefit to pay those expenses. If you don't need long-term care, your family will get an income tax-free death benefit when you pass away. This is a great way to preserve assets and create a financial legacy. There are also policies that will let you get all or a portion of your premium returned if you want to surrender the policy.
Set up a long term care "slush fund"
If you can't qualify for a long-term care insurance or hybrid policy because of health issues or age restrictions, you can put money into a brokerage account that will be specifically earmarked for long-term care. In retirement, investments are usually allocated conservatively because you need to live off of the money and don't have the time horizon to recover from a market loss. Since most people will not need care until age 80 or older (www.elderlawanswers.com), the funds can be invested aggressively in this earmarked account. If an individual retires at age 65, he or she still has 15 years to accumulate funds and ride out ups and downs in the market.
Consider potential tax benefits
Business owners may receive certain tax benefits for purchasing long-term care insurance policies. Depending on the type of business entity and ownership, long-term care insurance premiums may be tax deductible. Health savings accounts (HSAs) are also a tax-advantaged strategy to help pay for long-term care insurance and other long-term care expenses.
How we can help
I'm 47 years old and every time I play basketball I experience a new pain the next day. It reminds me of the medical care I may need down the road and informs the conversations I'm having with my family right now. When it comes to decisions about long-term care, communication is the best way to alleviate family stress. A 30- to 60-minute family meeting can save years of emotional stress.
CLA's experienced team of insurance professionals can help you see how life, disability, and long-term care insurance, and annuity products can play a part in your financial plan. Our advisors are not paid on commission and are not tied to any insurance carrier, so you can expect personal attention and objective, non-proprietary advice and recommendations.